Summary of Innolight (300308.SZ) Conference Call Company Overview - **Company**: Innolight (300308.SZ) - **Industry**: Optical modules and silicon photonics Key Points Growth Drivers - **Specification Upgrade**: Transition towards 800G and 1.6T is expected to enhance the company's average selling price (ASP) and gross margin (GM) [1][2] - **AI Server Demand**: Anticipated ramp-up in AI server shipments, particularly ASIC AI servers, will increase the need for optical modules, outpacing traditional GPU requirements [1][2] - **Technology Transition**: Shift from EML to SiPh optical modules is projected to improve gross margins due to lower costs associated with SiPh technology [1][2] Market Demand - **End Market Demand**: Positive outlook on end market demand driven by the increase in AI server shipments, with expectations of growth from 19,000 racks in 2025 to between 50,000 and 67,000 racks in 2026 [2] - **Chipset Diversification**: The diversification of chipset platforms in AI servers, especially in the second half of 2026, is expected to further support demand for optical modules [2] Supply Chain Dynamics - **Improved Supply**: Anticipation of better supply conditions in the coming years due to foundries expanding silicon photonics chip capacity and normalization of InP substrate supply from mainland China [3] - **Revenue Recovery**: Monthly revenues for InP epiwafer and CW laser suppliers, LandMark and VPEC, are showing gradual recovery, indicating easing impacts from export controls [3] New Opportunities - **NPO (On-board Optics)**: Concerns regarding Innolight's value addition in NPO are addressed, emphasizing that pricing is still driven by speed and that competition is healthy due to the need for PIC design capabilities [4] Financial Projections - **Price Target**: The 12-month price target is set at Rmb762, based on a P/E ratio of 31x for the period of 2H26-1H27E [8] - **Market Capitalization**: Estimated market cap is Rmb690.8 billion ($97.7 billion) with projected revenues increasing from Rmb23.86 billion in 2024 to Rmb94.13 billion by 2027 [9] Risks - **Key Risks**: Potential risks include slower-than-expected demand for 800G and 1.6T products, margin instability, geopolitical risks, and supply chain constraints [8] Financial Metrics - **Revenue Growth**: Projected revenue growth from Rmb23.86 billion in 2024 to Rmb94.13 billion in 2027, with EBITDA expected to rise from Rmb6.54 billion to Rmb36.93 billion in the same period [9] Conclusion - **Investment Recommendation**: Maintain a "Buy" rating with a target price reflecting a potential upside of 23.7% from the current price of Rmb616 [9]

Sector Report Summary: Technology Industry Overview - The report focuses on the technology sector, specifically the demand for optical modules in AI and cloud computing, driven by major players like Nvidia, Google, and AWS [1][8]. Key Points and Arguments 1. **Demand Forecast for Optical Modules**: - Total demand for 800G and 1.6T optical modules is projected to reach 43 million and 30 million units in 2026, respectively, an increase from previous estimates of 37 million and 15 million [1][8]. - This growth is attributed to: - Increased demand from Nvidia, Google, and AWS for accelerators [1][8]. - Rising GPU/ASIC scale-out bandwidth, which enhances the GPU/ASIC-to-optical module ratio [1][8]. - Google's transition to large-scale clusters in 2026, which will likely adopt optical interconnects [1][8]. 2. **Nvidia's Impact**: - Nvidia's new Rubin GPU is expected to significantly increase the scale-out bandwidth, with each GPU equipped with two CX9 NIC chips, doubling the bandwidth compared to the previous Blackwell architecture [3]. - The ratio of 1.6T optical modules to GPUs has improved from 1:2.5 to 1:5 [3]. 3. **Google's Transition**: - Google is anticipated to fully transition to large-scale clusters in 2026, with a projected TPU-to-optical module ratio of approximately 1:4 [3]. - Expected TPU shipments for Google are 4 million, leading to a demand for 6 million to 10 million units of 800G/1.6T optical modules in 2026 [3]. 4. **Beneficiaries of Increased Demand**: - Companies like Tower Semiconductor (TSEM), Broadcom (AVGO), and LITE are expected to benefit from the upward revision in demand for 1.6T optical modules [4]. - LITE is well-positioned to capitalize on the transition towards scale-up architectures in optical communications [4]. 5. **Market Dynamics**: - The report highlights the expected total shipment of Optical Communication Systems (OCS) to be 15,000 and 30,000 units in 2025 and 2026, with LITE projected to capture a 30% market share in 2026 [4]. Additional Important Insights - **CPO/OIO Updates**: - Nvidia's CPO switch is expected to see shipments of 2,000, 20,000, and 35,000 units in 2025, 2026, and 2027, respectively [5]. - Starting from 2027, both Nvidia and ASIC players are expected to introduce OIO-related solutions, which will drive demand for CW lasers and optical engines [5]. - **Risks**: - Potential risks include AI demand deceleration, geopolitical uncertainties, and increased competition within the sector [6][12]. Conclusion - The technology sector, particularly in optical modules for AI and cloud computing, is poised for significant growth driven by major players like Nvidia and Google. The upward revisions in demand forecasts indicate a robust market opportunity, although risks remain that could impact future performance.